Yankee Loans – "Lost in Translation" – a Look Back at Market Trends in 2015
This chapter takes a look at market trends for Yankee Loan issuance in 2015. "Yankee Loans" are US dollar denominated term loans that are syndicated in the US Term Loan B market to institutional investors and provided to European and Asian borrowers, based on New York law credit documentation.
Historically, European and Asian borrower groups sourced most of their financing needs through local European and Asian leveraged finance markets and would only seek to raise financing in the US leveraged finance market to match US dollar denominated financing against US dollar revenue streams or in certain more limited circumstances where there was insufficient liquidity in local markets to finance larger transactions.
Since the beginning of 2010, the depth and liquidity of the institutional investor base in the US Term Loan B market has proved at times to be an attractive alternative source of financing for some European and Asian borrower groups. It was a key source of financing liquidity to such borrowers in the early years following the 2008–2009 financial crisis, when financial conditions at the time in local markets affected availability of financing for borrowers in Europe and Asia. In more recent times, as local markets have continued to recover and the European Term Loan B market has started to develop, European and Asian borrowers have looked to tap US markets on a more opportunistic basis in a search for better pricing and terms (after factoring in currency hedging costs) in leveraged finance transactions, whether new acquisition financings, recapitalisations or repricings.
Market views on the outlook for Yankee Loans in 2016 continue to be varied but factors that will determine future issuance volume in 2016 and beyond will include supply/demand metrics in the US and European leveraged loan markets, the impact of regulatory oversight in both markets, whether US pricing rebounds to become more attractive again relative to pricing terms available from lenders in Europe and Asia, and whether the institutional investor base for European Term Loan B continues to increase in depth and liquidity, so that the European market gradually shifts away from the more traditional "buy and hold" approach from bank investors and moves towards a more liquid secondary trading market.
This chapter considers, firstly, some of the key structuring considerations for Yankee Loans. Secondly, it looks at how some differences get "lost in translation", by comparing certain key provisions that differ between the US and European and Asian leveraged finance markets and exploring the differences that need to be taken into account for Yankee Loans, focusing on negative covenants, conditionality and transaction diligence.
A Look Back at 2015
The year 2015 was mixed for Yankee Loan issuance volume in the US loan markets. Overall, volume remained solid with 139 total Yankee Loans (including 42 Yankee Term B Loans and 6 Yankee Term A Loans). Of those deals, 32 Yankee Loans were done on a covenantlite basis.1 Yankee Loans were issued to borrowers in a broad number of non-US jurisdictions (including Australia, Austria, Belgium, the Czech Republic, France, Germany, Ireland, Luxembourg, the Netherlands, Switzerland and the United Kingdom).
However, as US loan market conditions started to deteriorate in the second half of 2015, the number of non-US issuers looking to tap capacity in the US loan markets dropped significantly, as those issuers looked to take advantage of better pricing and liquidity in their own local markets. Additionally, the convergence of terms on both sides of the Atlantic (as noted below in more detail) means that non-US borrowers (especially those based in Europe) are now increasingly able to negotiate for the inclusion of all or some of the more flexible US-style terms (in particular negative covenant flexibility) for European-based loan transactions.
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This article was originally published on The International Comparative Legal Guide to: Lending & Secured Finance 2016.